Class 16 Lecture CB Winter 2025

Heuristics

Mental shortcuts people use to form judgments and make quick decisions.

Not 100% rational, can fail

Why/when consumers use heuristics

High search costs

Not enough time

Lack of involvement

Biases

Predictable errors in judgment that occur when using heuristics.

Compensatory Decision Making (heuristics use Non-Compensatory Decision Making)

Decision-making process using attribute ranking

Conjunctive Rule

When consumers form minimal acceptable level for each attribute in Compensatory Decision Making

Lexicographic Rule

When consumers choose brand with best attribute based on their most important factor.

Satisficing Heuristic

Select first option that meets criteria (“good enough”), not considering rest of the options+

Types of Heuristics

Availability: uses most easily available info

Representativeness: choose closest option to most representative example in category

Price: only choose on price

Anchoring: uses first info received to decide

Variety-seeking: chooses differently from before just for variety

Risk Aversion: choose safest option

Familiarity: choose most familiar option

Examples of biases

Anchoring

Context Effects

Compromise effect

Decoy effect

Attribute framing: 80% lean vs 20% fat

Endowment effect

Status quo bias

Mental accounting

Anchoring, AKA Reference-point Dependence

Value determined by amount of change from reference point

“A beer on da beach” example

Endowment Effect

The tendency for people to value an object they own more than an object they do not own.

Decoy effect

A cognitive bias where consumers change their preference between two options when presented with a third, less attractive option.

Mental Accounting

The way we think about money has lots of subjective factors (how we earned it, what form it’s in)